When we select portfolio companies, we want them to have a purpose that solves for a problem that is relevant to the world. More importantly, the solution must make economic sense and needs to be financially sustainable over time. Problems that our portfolio companies are currently addressing (profitably) include: responsible lifestyle, decarbonising economy, empowering societies, employee welfare, financial inclusion and animal health, just to name a few.
This month's Arcus is a continuation of the January edition with two more problems (opportunities) worth addressing for companies and panvestors like us.
We know we can’t solve all the problems of the world but where we believe we have understood a problem and also the solution set, we endeavour to find companies that are best placed to be the profitable change makers. Companies can help solve some global problems if they can help us answer these questions... 1) Is Purple the New Green - Hydrogen’s Second Coming? 2) Is Aging a Disease? 3) Where is the next Digital Dividend to be found? 4) How will companies Recruit, Retain and Retrain their Human Capital? After covering the first two in January, this month’s Arcus will cover 3) and 4).
3) Where is the next Digitalisation Dividend to be found? 30 years after the birth of the internet, digitalisation has become pervasive in our day to day personal and professional lives, or at least we think so. Certain sectors such as Banking, Telecom, Media and Retail have been truly transformed with most people taking for granted existing and incremental changes from digitalisation. When is the last time you marvelled at the speed of a video streaming on your mobile phone or the ease with which you make financial payments across the globe?
Source: AFRY
What is still not fully appreciated today, as it is out of sight and thus out of mind is how the boring yet critical industrial/manufacturing and infrastructure world is well behind in terms of digitalisation. The era of Industrial Digitalisation or Industry 4.0 as some call it has only just started as can be seen in the diagram above. Technologies and trends such as industrial internet of things (IIOT), smart factories, digital twinning, predictive maintenance, track-and-trace, and modular design to name just a few, are shaping how industry is improving their efficiency, productivity, employee and customer experience while reducing their environmental footprint and improving profits. Similar technological trends are being seen in the infrastructure space as well. This digital revolution in industry is making for some very interesting solutions by companies which excites us.
Disruption is not the birth right of unicorn companies alone. Advanced incumbents with legacy and experience, when driven by a purpose can drive more impactful and profitable disruption.
One such advanced incumbent is the 180-year old Schneider Electric. Born in the 1st Industrial Revolution and still going strong in the 4th, SE’s purpose is to empower all to make the most of our energy and resources. They deliver on that purpose by providing energy and automation digital solutions. 2020 proved the importance of this company within Industry 4.0, as 90% of countries they operate in classifying them as mission critical. Through automation and digitisation, they de-risked the electrical/automation operations of hospitals, electrical grids, water and wastewater infrastructure and data centres. While also delivering record EBITA margins and record Free Cashflow.
Source: Schneider Electric
After a decade of reinventing itself through digitisation of its own operations, processes and supply chains, Schneider Electric is now delivering digital products, software, services and systems to its own customers as shown above. It has become an even stronger player in Industry 4.0 due to its legacy, experience and purpose. It understands customer’s needs better than any unicorn disruptor, it has financial discipline having been through numerous economic cycles, it has improved its existing global supply chains rather than having to create them, it has been innovative through upskilling its human capital, it has attracted talent by being purposeful and has been accountable to all stakeholders with its Schneider Sustainable Impact (SSI) framework. For shareholders, it has also delivered strong financial returns and aims to take EBITA margins to 17% (from 15.6%) by 2022 with Euro 3bn pa Free Cashflow through the cycle - a worthy Panvestment indeed.
In the same vein as Schneider Electric, the companies we seek for our portfolio should help answer the following questions for Industry/Infrastructure:
What technology/software will allow for product and process design and engineering, end-to-end procurement, supply chain/distribution and after-sales?
How to provide the skill set deficit in Industry – Hiring of software and Internet of Things (IoT) engineers and data scientists, while training the wider workforce in digital skills?
How to extend digitisation beyond IT to include significant operational technologies (OT) such as track and trace solutions and digital twinning?
How to data enable industry and infrastructure?
4) How will companies recruit, retain and retrain their Human Capital? The re-imagining and re-architecture of work.
Every company is very human at its core, and in 2020 COVID-19 proved just that. COVID-19 showed that companies owe their human capital a duty of care. Furthermore, flexible and well managed organisations were capable of growth even under the pressure of a crisis. Workers were called upon to expand their roles in line with their organisation’s needs and in many cases, they rose to the challenge and delivered. If there is one thing this pandemic has shown, it is that given a chance to align workers interest and passions with a company’s needs, workers can show their potential in ways that most leaders and stakeholders would be proud of. True value of a worker’s potential and choice has become clear.
“Hypothesis: Empowering Workers With Agency And Choice Creates More Value Than Overly Prescriptive Approaches” 2021 Deloitte Global Human Capital Trends Survey
The COVID outbreak has also given many HR departments the chance to prove themselves. Human capital issues have become central business issues compelling HR teams to quickly and creatively solve both workforce and business problems. In doing so, we have seen HR departments shift away from their traditional role of planning and enforcing workforce policies to orchestrating work in an agile fashion across the organisation.
While HR departments have done a commendable job during COVID, we believe that companies can no longer silo human capital into an HR department. Companies need to learn lessons from the pandemic which has accelerated the need to change their human capital deployment and development towards a reimagined workplace. In the 70s and 80s, information technology was parked away into the IT department. Now, information technology touches every aspect of the organisation and is integrated in every decision. Human capital needs to be similarly elevated and integrated into an organisation’s day to day activities for it to prove its resilience and grow.
In a recent Deloitte Global Human Capital Trends Survey, senior executives were asked to compare their firm pre and post COVID in terms of workplace and thus workforce. The results below highlight a significant mindset change. The survey asked: How were you thinking about work transformation prior to the COVID-19 pandemic? How are you thinking about work transformation in the next one to three years?
The above survey results clearly show that the workplace and workforce of the future will look very different. Traditionally, HR issues and opportunities have been seen in context of slow moving, top down, skills-based, fixed timings and location, and reactive for skill gaps. Traditionally, human capital and workforce planning has been based on static job descriptions, linear career paths and competency frameworks. All of this is being reimagined in the workplace of the future. While there are many challenges for companies in this move, we have found one such company that is helping with such reimagining of the workplace by improving employee satisfaction and well-being.
Edenred is a Specific Purpose Payment Solution provider for companies and governments. Its purpose is to be everyday companion for people at work. Even before COVID, companies were re-imagining how to improve on employee well-being and purchasing power, especially when it came to food, fleet and mobility, incentives and corporate payments. Edenred does just that with its +250 digital solutions that connect 2mn merchants, >850k companies and 50mn employees in a B2B2C model worth €31bn in 2019.
As an example of their value add, Spotify recently engaged them to help feed their employees working from home. Edenred is providing a unique digital solution (Ticket Restaurant) for meals via partnership with caterers/restaurants and logistics companies. Their Ticket Restaurant Product now spans 35 countries serving 1.5bn meals a year for employees. Similarly, they have sustainable transportation solutions helping and incentivising US employees to switch from private to public transport, with 300k such employees helping avoid 500k tn of carbon emissions in 2019 alone. Edenred is just one of many purpose driven firms that will play a major role in the coming transition to a new reimagined workforce and workplace.
As Panvestors, the companies we seek for our portfolio should help answer the following questions for human capital and a reimagined workplace:
What technology/software or process can help a firm build workforce capability through upskilling, reskilling, and mobility keeping in mind the dynamic nature of jobs and the equally dynamic potential of workers to reinvent themselves?
How to ensure workers creativity is not ignored, if anything deployed? As an example, automotive workers used 3D scanners and computer simulations to retool their assembly lines to manufacture ventilators for COVID-19.
How to match workforce interest, capabilities and passion with companies current and future needs? Some see these as “opportunity—or talent—marketplaces” platforms.
How to gather data on workforce which not only provides a real-time view of workers’ skills across the entire talent ecosystem but also helps identify workers’ desired future directions?
CONCLUSION
Over the last two months, I have shared with you some areas of interest that while not new to us, seem to have their solution set developing in a way which provides potential investment opportunities for our portfolio. The problems that are being solved with purpose are not limited to the ones I have shared, and no doubt many more challenges will need to be addressed in coming years. Our role as Panvestors is to find companies whose purpose is to solve for problems and challenges in a profitable and impactful way.
Happy Panvesting!
Munib Madni,
Founding Panvestor